Put off that new boat and start by deciding which needs are urgent and which are
merely important to you. Paul Katezeff, a staff writer with Investor’s Business Daily writes, millions of families have taken the hint. With the economy weak and layoffs rising, they are beefing up the household balance sheet by slashing expenses.
"More people are taking action even if layoffs have not struck their family,” says Bruce Bickel, of PNC Wealth Management in Pittsburgh. The key to cutting expenses is to form a budget. You've got to know what you are spending and where to decide how to cut back. For many people, especially high net worth people, budgeting and reducing their expenditures are tough because they've never done it before. The task can also be tough for emotional reasons. "Some. people hesitate to budget due to pride and embarrassment," says Bruce Bickel. "They always felt above such things." But it's got to be done if you want to avoid a fiscal calamity. Each family member must start by listing their expenses.
Each item should then be categorized as urgent, important or entirely discretionary. The tough part is often distinguishing between urgent and important. The decision especially for high net worth families can hinge on such things as what a family wants its legacy to be. Urgent items are the last to be deleted as you decide where to trim your spending. Next comes the budget itself. It is suggested to set aside 10% of income for long-term goals such as retirement and children’s education.
Then 70% of income should go to the regular living expenses. The final 20% should be for a buffer fund. “That prevents people from living on credit” Bickel said. The buffer fund is also for emergencies.
Cutting back on credit use is a key to making a budget. For one thing, credit can entail interest charges; for another, credit makes it easier to spend beyond your income.
Anne Uno, a financial adviser and tax preparer in Arlington, VA. suggest looking at your loan payments and credit card bills. “Pay off the ones you can, starting with the higher interest-rate debts”. Whether paid by credit or not, the next group of expenditures to tackle are big ticket items. Consider getting rid of these items:
Club Members. Whether it’s a country club or golf club, memberships are important at best but certainly not urgent. They can be extremely expensive and you can save thousands of dollars. No club membership is more important than keeping your home or putting food on the table.
Automobiles and boats. Postpone buying a new car or boat. If the old one breaks down totally, buy a less expensive replacement than whatever you had in mind. Leasing a car or boat. Don't. You don't build equity. You can't resell it. It just adds to debt.
Vacations. Take them less often and make them shorter. Also, consider alternative formats. Look into home exchanges. Travel by train, which cuts down on hotel
stays. And piggyback on professional conferences. That way part of the trip is paid for by your business. Part may be deductible also. Another scenario is to visit grandma and grandpa instead of cruising the Caribbean. You may eliminate hotel costs or slash them altogether. Mom and dad can stay at a motel while the kids bund at their grandparents home.
Dining out. Visit fancy restaurants less often. Don’t be shy about taking home a doggie bag.
Installment payments. If you must buy on credit, shop for a longer
payback period. You'll pay more interest over the long run; but it will cut your monthly bills in the near- term.
Insurance. Shop around. You can often find the same coverage for much less money. You can also save hundreds of dollars a year by cutting more mundane
expenditures.
Service expenditures. Visit beauty salons and barbers at longer intervals. The same goes for things like housecleaning. Instead of scheduling the service monthly, make it every six weeks. And forgo indulgences. Either don't get silk-wrapped nails, or do them yourself. Temporary sacrifices should be spread as evenly as possible through the family. For example, children may have to
go without summer camp this year. Or they may have to make do with fewer weeks. Another option: Day camp instead of overnight camp.
Cable TV. Relax, you don't have to eliminate it completely. How about just trimming some of the bells and whistles? Consider moving down to a less expensive package. That's easiest if you give up multiple movie, channels or
specialty channels. You can give up one or more premium movie channels.
Try using Netflix instead.
Warehouse shopping clubs. Go with a friend and split purchases that you both would make anyway. People often don't use all of their bulk buys, and it goes to waste. Avoid that.
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